January 16, 2018, 02:51:05 PM

Author Topic: to incorporate or not to incorporate/taxes  (Read 1120 times)

greatnorthernprepper

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to incorporate or not to incorporate/taxes
« on: July 10, 2012, 06:23:43 PM »
Basically I already have a s corp that i formed years ago for overseas contracting to save that 3% on the Self employed income tax

Now my question is

in my situation should i use that "business" that already exists for all revenue

or should i go the SEI route?

second question

-Lets just say that someone doesnt have an s corp already

should they incorporate or just stay SEI?

-at what point should someone incorporate

-what is the best route to go for podcast/blog/internet storefront business members as far as taxes go?

thanks in advance

Owngineer

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Re: to incorporate or not to incorporate/taxes
« Reply #1 on: July 23, 2012, 08:47:10 PM »
I'm not an internet mogul just yet but let me give you some thoughts.  First off, how much money do you intend to make and will it be enough to offset the added expenses of supporting a business entity?  I'm not planning on doing an LLC until the business is very profitable and maybe not even then.  If you are old enough or the income from the business is great enough, it could be sheltered in a retirement account or special pension plan.  That could get you out of lots of taxes.  What I did in my chemical businesses was write off as much as possible for business expenses and having a separate entity made that easier to do.  Don't know what your expense profile is like but my 3/4 ton diesel crew cab got depreciated off in one year and then I bought it from the business at book value ($100).  The 6.75% sales tax was much better than the sales tax plus 28% income tax I would have paid on the same money had I not run it through an LLC.

Final note, LLC's in states such as Wyoming have less drama than some other states and it has been my experience that LLC's are much easier to deal with than C or S corps.
Owngineer - Turn your technology into your business
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msharman

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Re: to incorporate or not to incorporate/taxes
« Reply #2 on: September 03, 2012, 07:18:08 PM »
@ greatnorthernprepper -

There are a few reasons that I would recommend bringing all activity under the umbrella of an LLC or a Corporation, but the biggest is liability. The main reason businesses are formed is to create a separate entity from the owners to allow for efficient management and distribution of profit while minimizing the potential liability risks. As easy as it is to create an LLC or even an S Corp, there is really no good reason not to.

With an LLC, the IRS views you as either a sole proprietor or a partnership, which means self employment tax rules apply.  The benefit here is that you also get the flow-through of losses that you can take against your other income in the beginning stages of your business if you are taking a loss at this point.

An S Corp is its own entity entirely, and so you do not get the flow-through of losses against your personal income. However, if your business is holding steady on net income, this may not even be an option. An S Corporation also allows you to take both a salary and distributions, with the business portion of the employment taxes being deductible as a business expense (as you already mentioned).

An easy way to get the ease of an LLC in formation and the tax benefits of an S Corporation is to start an LLC in your State, and file an S Election (form 2553) with the IRS to be taxed as an S Corporation. This does require more formality in the business (annual meeting, minutes, titles, setup, etc), and you will have to file taxes with form 1120S over a Schedule C or Partnership return. Also, if you are deducting business payroll taxes, you will need to file Payroll Tax Returns with the IRS each quarter, which complicates things. Also, you don't have to worry as much about estimated tax payments as you can run additional paychecks with increased federal withholding to make up the difference. I advise my clients to look into an S Corp when they are bringing in around $50k a year as the taxes saved will offset the additional work required.

What is the best route for an online/storefront business? LLC to begin with, and when you are bringing in more money, file the S Election and start taking advantage of the tax deductions. Starting as an LLC will allow you to pass through the losses in the early years to reduce your personal tax liability. Do not stay a sole proprietor or partnership. The risks here far outweigh the cost of $50-$100 to file for an LLC. I wouldn't do any of this outside of a business at all because you don't get to deduct expense

Let me know if this answers your questions or if you need more info here. If you are interested, I have a few articles about this at the following links:
http://thesumofbusiness.com/protecting-limited-liability/
http://thesumofbusiness.com/choosing-a-business-entity/

Thanks!

Mark
http://TheSumOfBusiness.com/ and http://CrossroadsAccountingLLC.com/
Let me know if you have any accounting or business finance questions and I would be happy to help you out!